How Verizon finds IoT innovation outside its four walls

Verizon Ventures says that while consumer Internet of Things startups were all the rage in 2014 and continue to be popular among investors, enterprise IoT newcomers have become even hotter properties among venture capitalists over the past two years, with enterprise IoT investment expected to double or triple that of consumer IoT in 2016.

Verizon’s investment arm has been among those outfits targeting enterprise IoT, with investments in startups such as Filament and Veniam, which focus on industrial networks and connected vehicles, respectively.

Ed Ruth, a director at Verizon Ventures who focuses on IoT as well as interactive media/entertainment, says Verizon invests in startups to help fill current gaps in its business as well as to generate revenue down the road. “We also really want to make sure we’re gaining as much knowledge about a particular space as possible,” Ruth says.

“As I looked at IoT about a year ago, it became very clear that the path to revenue was a very long one in the consumer IoT space unless you’re a hardware business -- and we’re not in the hardware business,” Ruth says. Generating revenue in consumer IoT would require that Verizon partner with big companies such as Google or make big acquisitions, he says.

So Verizon Ventures, a 10-plus-year-old unit that has operated largely behind the scenes until the past few years, started looking harder at enterprise IoT.

“So we started digging into the industrial or enterprise IoT space and what became very clear was that there were a number of enterprises that needed answers today to known problems that traditional frameworks weren’t quite solving,” Ruth says. This situation promises to be exacerbated if you believe reports from IBM and others that there will be tens or hundreds of billions of always connected devices seeking permissions or data from the cloud, he adds.

This has led Ruth and his colleagues to investigate, and invest in, companies touting the use of protocols like blockchain to allow for autonomous data transactions over distributed networks as well as startups involved in multi-hop mesh frameworks that allow data to travel in more of a machine-to-machine or peer-to-peer fashion than always having to run back through Verizon’s network. Verizon foresees such advances playing a role in both the emergence of 5G networks and of its own network fabric.

Not surprisingly, Ruth sees even those technologies that are more focused on industrial IoT today most likely becoming factors in consumer IoT down the road to support such applications as proximity and awareness. For example, startups that today provide technology for the likes of Uber to manage fleets of vehicles without racking up huge communications bills for LTE backhaul, etc., could someday trickle down for use by individuals.

“Security is a known issue today and will only be a bigger issue tomorrow,” he says, noting that while Verizon hasn’t invested in security IoT, it has met with numerous startups in this area. “As enterprises see this proliferation of connected things and potentially having connectivity back to their core network, these all become ingress points for bad actors and for security breaches. So really there needs to be a multitude of solutions for security.”

Ruth anticipates that the majority of IoT startups, before they get too big, will get gobbled up by the likes of Cisco or Ericsson, though service providers could be buyers too once the IoT startups transition from product sellers to solutions providers.

In essence, it is startups like these that amount to little R&D labs for service providers that once relied much more heavily on their own innovation centers such as Bell Labs.

“We’ve become very aware over the last 5 to 7 years that the cost of entry and barrier to building something very innovative and even destructive in the market has gone way, way down, so you now see a lot of innovation and R&D happen outside the four walls of big corporations,” Ruth says. “This is very much a big part of our innovation program.”

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